The results are in … and the future for Starbucks isnt bright

6 August 2008 min read

The announcement by Starbucks recently that they would be closing 61 out of 84 stores across Australia received plenty of coverage in the mainstream press and also in the blogosphere – if you dont believe me (and were, perhaps hiding under a rock last week) just take a look at the list of articles below.

Theres been quite a bit of speculation around what Starbucks long-term plan for coffee in Australia is, especially considering their strategy up to this point has seen the company in Austraslia run at a loss of nearly $63 million in the two years to last October.

So in the interests of democratic debate, we posed the poll question last week:

With a different marketing strategy, do you think Starbucks will be able to survive in the Australian market?

The Australian marketing community has been busy voting, and theres no question how they see the future for the global coffee company – and its not good.

86 percent of you are happy to proclaim Good riddance to bad, ahem, coffee, while only 14 percent of you voted that Starbucks would e back stronger than ever

As a coffee lover myself, I cant say I was devastated to hear about the Starbucks announcement, although I am not convinced that weve heard the last of them over here in Australia.

Trimming the fat

Starbucks US founder and chairman Howard Schultz was quoted in various sources as saying that the Australian
closures would help support the continued growth of our international
business, which leads you to believe that this is a global corporate decision to cut the fat before launching even more aggressively into the Chinese market, a strategy the company has openly discussed.

But I would argue this doesnt mean that Starbucks is gone for good from our landscape. I actually think they may be ready at some point in the future to reenter the marketplace here, but in a form we wont necessarily recognise.

Two-pronged attack

The future for Starbucks in the US looks like it is going to revolve around a dual-pronged marketing strategy, one that pitches the company at two different markets simultaneously. On the one hand, Starbucks is pursuing a new price promotions strategy, something previously anathema to the expensive coffee brand. A Businessweek article from July 9 explains how the brand has been trialling a number of price promotions across the US during July and seeing which are successful, before deciding whether this is a strategy they will roll out nationwide:

Through July 14, coffee drinkers in Atlanta and Indianapolis can get
a free 12-ounce hot or iced coffee every day with a similar card.

In
other cities around the country, Starbucks is making twice-a-day
customers afternoon coffee easier on the wallet. Depending on the
city, customers with a morning receipt can buy a 16-ounce cold beverage
for $2 after 2 p.m., or get a $1 discount on a cold drink after 1 p.m.

And elsewhere, the company is selling discounted drinks throughout the day on Fridays, Saturdays and Sundays.

For Starbucks, a brand built on premium price and a premium image, there is a danger that a coupon- and reward-driven promotional strategy will tarnish the position of the brand in the marketplace. But as Brad Stevens, vice president of customer relationship management at the embattled coffee company, concedes, with the economy the way it is right now, people want value, but they want value that is relevant to them.

Its a dangerous route to take – to tread the thin line between mass product commodity and premium brand experience – but one that Starbucks sees as crucial to revitalising the brand in the face of a slowing world economy that could hit coffee-lovers where it hurts – their disposable income.

Coupled with a price promotions strategy geared towards encouraging more footfall to the stores and a sense of value around the Starbucks offering, the company is also pinning no small part of its future hopes on a small, sleek stainless-steel saviour, in the form of the Clover coffee machine.

A very clever little machine

The Clover has been the talk of barista circles and coffee clubs across the US since its launch in 2006, with customers even queueing around the block for a cup of this precision beverage. With baristas able to control every aspect of the preparation – dose, water temperature and brew time – the Clover excels in its treatment of single origin coffees with complex flavour profiles.

But thats all coffee geek speak. How does this magical caffeine contraption hold the hopes of Starbucks as a brand on its polished drip-tray?

A key criticism of the Starbucks brand in recent years, which seems to have translated directly to in-store sales, has been the fact that the company is no longer perceived as the little Seattle start-up, purveying great coffee with knowledgeable staff and a relaxed ambience. In an internal memo (leaked to the press, and to me from Wired magazine) from new CEO Howard Schultz, the trouble with the now cumbersome coffee giant was made clear:

Im not sure people today even know we are roasting coffee. You certainly cant get the message from being in our stores… at a minimum [we] should support the foundation of our coffee heritage.

And Schultz wasnt just frothing at the mouth – he announced sweeping changes to the way Starbucks would operate, bringing the grinding and roasting processes back in-store, and most importantly trialling their secret weapon – the Clover – in some stores.

In my 25 years at Starbucks, the Clover machine unquestionably delivers the best cup of brewed coffee I have ever tasted. The Clover represents for Schultz the future for a Starbucks he envisions as delivering exceptional quality coffee.

Back down under?

So the big question then remains, how will this strange Frankenstein marketing strategy work for the brand? How will it combine price promotions designed to bring in the masses with a strategy geared towards attracting the coffee connoisseur?

And ultimately, will this double threat marketing eventually see Starbucks launch another assault on the Australian market? I think that if the brand manages to turn its fortunes around in the US, we may well again see the green circle on the side of more Australian coffee cups. With its focus on premium coffee, a move back into the Australian market – with its high level of consumer coffee knowledge – is not off the cards.

HUBS

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